ZURICH, July 6 (Reuters) - Swiss asset managers have welcomed simpler rules for their $4.2 trillion industry, which they say could boost their international reach rather than killing off smaller players as some had initially feared.

Regulator FINMA has toned down the proposals it outlined in March, when small managers said its costly one-size-fits-all approach to compliance and risk management might force them to relocate, merge or shut up shop.

"It is better than the original draft. People aren't fazed by it they welcome it, though they will need to prepare for it," Glen Millar, head of the Geneva office of asset management consultancy Kinetic Partners said.

"Switzerland can use it as an opportunity to make the jurisdiction more attractive for asset managers."

Swiss asset managers say FINMA's initial proposal was tougher than what was needed to comply with the European Union-wide Alternative Investment Fund Managers' Directive (AIFMD) that will regulate Europe's hedge and private equity funds from mid-2013. But the revised plans would bring Swiss regulations into line.

Martin Straub of Envisage Wealth Management in Zurich said: "FINMA isn't going overboard, as it seemed in the original draft.

However, compared with the UK which is preparing its own set of rules, Swiss fund managers look set to get off lightly.

Cath Tillotson of wealth management consultancy Scorpio Partnership said the UK regulator's Retail Distribution Review (RDR) is much tougher than the Swiss proposals.

"For RDR the cost of compliance is high, with onerous training and professional development requirements. Many independent managers won't be able to afford it," she said.

"The FSA (Financial Services Authority) is aiming for suitability rules for every product in the client's portfolio, so in comparison, what FINMA is proposing is very light touch indeed."

While London is still the undisputed centre of the European hedge fund industry, low-tax, lower-regulation Switzerland has grown in importance in recent years, attracting some of the biggest stars, including Brevan Howard co-founder Alan Howard and BlueCrest's Mike Platt and Leda Braga.

At least one Swiss canton has even held briefings in London's upmarket Mayfair district, the centre of London's hedge fund sector, on the attractions of moving.

TOO LIGHT TOUCH

An ongoing tax dispute with U.S. authorities and tax wrangles with key markets like Germany have dented the mature market client base of Switzerland's $2.2 trillion offshore wealth management industry.

But Swiss political and economic stability have been a magnet for entrepreneurs from developing markets like China and India seeking a safe home for their new-found wealth, helping to replace the depleting ranks of U.S. and European tax exiles.

Well-drafted regulation will bolster Switzerland's claims as a safe haven rather than a tax haven, industry sources said, opening up its asset managers' access to clients who prefer a well-regulated industry to one with no rules at all.

The proposed minimum experience requirements may close a small number of firms and make it harder to set up shop, but that could also be a positive, some managers say.

"I don't think FINMA is looking to put independent asset managers out of business, just have a more tightly controlled industry," said Straub.

"Regulation has been too light touch for too long, and I think something like this is long overdue. There should be some minimum relevant experience requirements - at the moment, a drover's dog could be an asset manager here in Switzerland."

The new rules have three aims, said Markus Fuchs, senior counsel at the Swiss Funds Association, an industry body: to improve investor protection, enhance competitiveness - for example, by ensuring all fund fees are clearly explained - and ensure international compliance.

"You have to be fully compliant with AIFMD to distribute funds in the European Union, so Switzerland will have to negotiate agreements with each EU country," Fuchs said.

"With a new law in place, the Swiss regulator can start negotiations with foreign regulators."

SOME UNHAPPY

Not everyone is happy. Some frustrated fund managers said they were considering a move to Liechtenstein - whose European Economic area membership allows it to sell financial products more easily into the European Union - rather than registering with FINMA only to risk stiffer Swiss edicts.

"FINMA recommends applying for registration now without knowing what the rules will be," said one manager considering the move to Liechtenstein.

"You can't run a company for a year without clear guidance on what your legal base is," he said.

However the Swiss Parliament, which is expected to vote on the new rules by early 2013, is unlikely to stiffen the FINMA proposals, industry experts said.

Moreover small asset managers with under 100 million Swiss francs ($104 million) may be exempted from having to register with FINMA at present, giving them some leeway to see what new rules look like.